Strategy, Legal & Operations

Why People Give: The Importance of Financial Metrics in Nonprofit Storytelling

Discover the latest findings into why financial metrics are a critical part of good nonprofit storytelling.

Inflation is forcing difficult economic decisions for many charitable donors. As we head into the busy year-end fundraising season, donors are pulling back on charitable giving, citing pocketbook concerns. The 2023 Donor Engagement study reveals, “Among people who stopped giving to charities, 59.1% of participants with annual household income above $70,000 agreed with the statement ‘there are people out there with significantly more money who should give to charity instead of me.’”

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With competition growing for every donor dollar, it is important to understand what motivates donors to give. Further, it is necessary to revisit fundraising campaigns and ensure your nonprofit mission story is compelling and contains all the elements needed to engage today’s donors.

In this article, we will share the latest findings on donor trust and financial stewardship—explaining how financial metrics are a critical part of good nonprofit storytelling.

Trends in donations: Fewer donors and larger gifts

Inflation has been hurting nonprofits in two ways. First, regular household expenses have risen faster than wages, leading many families to cut back on charitable giving. Second, the money nonprofits do receive purchases fewer goods and services than before, further compounding program budget shortfalls.

The nonprofit industry suffered one of its steepest fundraising declines in history, according to the most recent GivingUSA report. After adjusting for inflation, total donations dropped 10.5% between 2021 and 2022. That is only the fourth time in the history of the report that the nonprofit sector has experienced a decline in total giving.

Households earning less than $70,000 per year have been most likely to pull back on giving, according to a 2023 study on donor trust. Among these households, 6% have stopped giving to charity entirely, and an additional 20% have cut back their donations.

With fewer households in the donor pool, higher net-worth donors have increased the size of their donations, filling some of the gap. Nevertheless, there is greater competition for donors, so it is important to tell the story of your organization’s mission impact effectively in all of your fundraising efforts.

Donors give to organizations they trust

Whether your fundraising campaigns are focused on the general public or high net worth individuals, it is more important than ever to earn—and keep—donor trust. They are watching their budgets closely and will also scrutinize the financial stewardship of the charities they support. Strong financial performance, measurable results, and open transparency are integral to successful fundraising.

According to the Donor Trust Report,  64% of all donors say trust in a charity is extremely important, yet only 20% report having a high level of trust in nonprofits. The more a donor gives, the more value they place on trust. Among those who donate $5,000 or more annually, 80% say trust before giving is essential.

Trust is tied to financial stewardship

The Donor Trust Report posed an open-ended question to respondents about what makes them trust a charity. By order of frequency, donors identified charity finances, charity reputation, honesty, and transparency as the top factors leading to trust. When asked what might deter them from giving, 58% listed financial concerns:

  • 32.8% of donors said they are discouraged when a high portion of dollars donated are spent on fundraising expenses. This is more of a concern with more mature donors.
  • 24.9% said they are most deterred by being unsure of what the charity will do with the money. This was a greater concern for Gen Z than older donors.

Fundraising campaigns that do not make a point of transparency and financial stewardship could underperform across all socioeconomic and age groups of donors. Financial transparency with third-party charity evaluators is also essential, as many donors rely on ratings from independent organizations to help steer their giving.

Financial performance metrics strengthen nonprofit storytelling

Good fundraising makes an emotional connection with donors. To do that, you have to tell a compelling story about your mission, complete with outcome metrics that demonstrate positive impact by your organization. When asked what most signals a charity is trustworthy, donors cited these top five factors:

  1. Accomplishments shared by the organization (This can be reflected by outcome metrics and personal stories shared in your fundraising)
  2. Third-party evaluation by an independent organization
  3. Name recognition
  4. Financial ratios
  5. Passion and sincerity in the appeal

The finance team can help strengthen fundraising success by making both financial performance and outcome metrics available at all times. To make this easier, a modern, cloud-based nonprofit accounting solution calculates ratios and outcomes automatically and makes them available to share throughout your organization via role-based dashboards and reports.

Two financial metrics that demonstrate good stewardship

As we learned earlier, donors want proof that every dollar given will be put to wise, efficient use by the chosen nonprofit. The more transparency you can put around your fundraising expenses and your program expenses, the more comfortable donors will feel. Here are two financial metrics you can use as part of your nonprofit story:

Program efficiency

This metric may be the most important for many charity evaluators, board members, and donors because it shows how funds are used: for overhead, or for making progress. The basic formula is:

Program efficiency = Total program services expenses ÷ total expenses

Fundraising efficiency

This metric lets donors know how much of every dollar raised goes to raising more funds. Remember, this was particularly important to more mature donors. The basic formula is:

Fundraising efficiency = Unrestricted fundraising expenses ÷ total unrestricted contributions raised

Above all, focus on mission impact in all your fundraising communications. Ratios give important financial information, but good nonprofit storytelling needs heart. Wrap your numbers in real-world impact stories.

Vitamin Angels—Great stewardship, great storytelling

Donors want to know how you will spend the money, and you can use outcome metrics to paint a very compelling financial picture. How many meals will you serve with a $20 donation? How much does it cost to spay or neuter one stray animal, and how many additional stray puppies or kittens will that prevent?

Vitamin Angels provides a great example of how to effectively combine financial transparency with outcome metrics and mission impact for nonprofit storytelling. The organization helps deliver evidence-based nutrition interventions to more than 60 million pregnant women and children in 65 countries annually.

Their homepage immediately connects donors to the mission through imagery and words, inviting them to get involved and give:

They spotlight their financial transparency and good ratings with third-party evaluators, noting “we’re one of the top 3% of charities to receive a 4-star rating from Charity Navigator, not just once but 10 years in a row”:

The organization also invites donors into the individual and community stories of their mission impact around the world:

Vitamin Angels has big goals for growth. The organization wants to double its impact by 2033 to reach 140 million women and children annually. To accomplish this, they will need to be very successful with their fundraising. Offering donors full access to audited Form 990s, easy links to charity evaluator rankings, and both financial performance and outcome metrics reinforce the organization’s compelling story.

Final thoughts

With a widening wealth gap and ongoing inflation, nonprofits face greater competition for funding. Successful fundraisers will show donors why their money will go further and make a bigger impact. Great nonprofit storytelling will be essential, and the best stories center around mission impact and are bolstered with the added credibility of outcome metrics and proven transparency around financial stewardship. To learn more about how to use financial performance metrics and outcome metrics to strengthen your mission story, download the Nonprofit Storytelling: Using Data and Performance Metrics to Motivate Donors e-book.

Nonprofit Storytelling: How to Use Data and Performance Metrics to Motivate Donors

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